In life, there will be times that you may have to face some difficult challenges. You may fall behind on your bills, leaving you to face one of the most difficult hurdles—whether it is best for you to declare bankruptcy or go through a foreclosure. There’s a lot you have to know before coming to this decision, and with a good bankruptcy attorney at your side, you can learn how to weather the storm.
How you choose between these two options comes down to multiple factors. Your living expenses, income, and other debts play their role in deciding between declaring bankruptcy or going through a foreclosure. Each one also plays a role in your future income growth and credit score as well.
Bankruptcy vs. Foreclosure
Both proceedings are set up to help forgive and alleviate some debts and will need to be reported on all future loan documents. There are some very significant differences between the two and will affect your credit score.
“Bankruptcy is a legal proceeding carried out to allow individuals or businesses freedom from their debts, while simultaneously providing creditors an opportunity for repayment,” Investopedia explains. The two kinds of bankruptcy most often filed are Chapter 7 or Chapter 13. Each carries its own set of guidelines. Each filing may lower your credit score and will remain on your credit report for seven to ten years.
Chapter 7 bankruptcy affects all unsecured debts and is removed from your credit report in ten years. This does not include student loans, car payments and mortgages (if you are keeping them), or unpaid child support. Chapter 13 bankruptcy, eliminates debts differently. Chapter 13 will restructure secured debts such as car loans and in most cases reduce or eliminate the same debts Chapter 7 eliminates. Chapter 13 payment plans are for a 3 to 5 year period. This form of filing will be removed from your credit report in seven years.
A foreclosure is a legal process that is initiated by a lender due to unpaid debts on a property. It only affects the home. If “a homeowner is unable to make full principal and interest payments on his or her mortgage” the lender will take control of the property, according to Investopedia. A foreclosure will affect your credit score dramatically and will be removed from the report after 7 years. While foreclosures have the lowest impact on your credit score, it could affect how a mortgage lender sees you.
Which Route is Best for You?
Also in many circumstances, the mortgage lender can still collect from you after a foreclosure. If you’re still not sure which process you should go with, you should contact one of the experienced attorneys at Rulon T. Burton and Associates. We specialize in bankruptcy law and can help you navigate the filings. Request a consultation today to learn more about how we can help you.